Donations are the life blood of nonprofits that help them survive and fulfill their missions. Proper accounting of donations helps an organization understand where its support is coming from and the value of that support. Donations can also provide benefits to corporate and individual donors by allowing them to deduct the donation from their taxes.

Value of Donations

Almost anything of value can be donated to a nonprofit, from old clothing, cars, services, time and, of course, money. The nonprofit must assign an acceptable value for the donation. Internal Revenue Service Publication 561 covers the guidelines for determining fair market value for tax purposes. Essentially, fair market value is what the item would sell for if placed on the open market. Donations of household items valued at more than $500, and higher-valued items over $5,000 (e.g., property, jewelry, etc.), have to be appraised by a qualified appraiser to determine their value. Donations under these thresholds can use the comparable method. In other words, the value of an old sweater can be determined by how much an old sweater in “comparable” condition would sell for at a thrift shop.

Tax Deducibility

The IRS allows the value of a donation, either through appraisal or comparable analysis in the case of goods and property, to be deducted from personal or business taxes once the donation has been properly accounted for. Individuals and businesses can deduct up to 50 percent of their adjusted gross income by donating goods or money to a public charity to lower their tax liability.

Cash Donations

Donations of cash are counted as income on financial statements. Cash can be listed as either restricted or unrestricted. Restricted means that the donor gave the money to support a specific program or aspect of the charitable organization and the money cannot be used for any other purpose unless the donor agrees to the changes. Unrestricted funds can be used for any purpose the nonprofit deems necessary.

Tracking Donors

Keeping a thorough and accurate accounting of donors helps a nonprofit keep track of who is donating to the organization. Every individual and business that provides goods, services or money to an organization should be placed into a database listing names, addresses, contact information and the value and frequency of their donations. Development officials can utilize this information in an attempt to increase the support from those individuals and businesses through further donations and get them to help in outreach efforts to reach more people the organization can appeal to for support.

About the Author

Griffith Pritchard served as a senior branch manager and banking officer for M&T Bank. He specialized in small business and personal financial, credit and banking products. He also has extensive experience in small business sales and non-profit management. Pritchard is a graduate of Hobart College.